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Rising costs for screws are rippling through manufacturing supply chains. President Trump’s tariffs implemented this month on steel and aluminum imports have scrambled the supply chains of companies that make everything from car parts to appliances and football helmets to lawn mowers. The latest tariffs cover a wider range of imports, including the screws, nails and bolts that serve as the connective tissue in manufacturing.
That has set off a hunt to find domestic supplies of some of manufacturing’s smallest components. Manufacturing executives said the U.S. doesn’t have the plants to churn out the amount of steel wire or screws and other fasteners needed to displace imports. The production capacity we need doesn’t exist here in the U.S.,” said Gene Simpson, president of fastener maker Semblex. “It’s a select group of suppliers.”
About $178 billion of steel and aluminum products imported by the U.S. last year are now subject to a 25% tariff, according to Jason Miller, a supply-chain management professor at Michigan State University: “It’s a shockingly large number of parts”. American companies also can no longer petition the Commerce Department for tariff exemptions on specific products that aren’t sufficiently available in the U.S. The enlarged tariff pushes up the cost of a 10-cent screw from China to 17 cents for an importer.
At AlphaUSA, about half the of the materials that the Michigan-based auto-parts manufacturer purchases are fasteners. Many of them are made outside the U.S., particularly in Canada, which is now subject to the 25% duty after being exempted for years. President Chuck Dardas saidt he company’s customers are very religious about their quality standards, and often request specialized parts for assembly lines. Dardas added that many U.S. companies that make fasteners purchase the steel for them from Canada as well.
Price-sensitive customers
The situation for the auto industry became more complicated Wednesday, when Trump announced an additional 25% levy on imports of car and auto parts. The effects of the tariffs are expected to be felt quickly, as many suppliers have said they are unable to absorb added costs from new levies. And companies that use screws and other metal parts covered by tariffs say their customers won’t tolerate price increases. Some construction contractors may delay projects until they get a handle on how to blunt the effects of import duties.
Simpson’s firm Semblex produces fasteners for automobiles, industrial lighting, farm equipment and heavy-duty commercial trucks. To make those fasteners, the company uses specialty steel wire. It imports more than half of the wire it uses, mostly from Canada. As tariffs make imports more expensive, American steel wire producers are raising their prices at the same time. Simpson said cost increases for steel are difficult to quickly pass along to customers, especially in the automotive industry where prices are often locked in monthslong contracts.
© 2015 Mutual Fund Observer. All rights reserved.
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Comments
Or they can suck it up and pay the higher price for foreign screws; and that is inflationary.
There's more to the story than screws: Dinky linky. Scary graph at the link.
Higher prices, less demand, fewer jobs. But wait! There's the gig economy. So unemployment won't look quite so bad. The new and improved stagflation lite.
Don't worry Ma, it's only politics as usual.
A-hem. Excuse me, but that's a business decision. You can't tell me that you just "can't." What you're actually communicating is that you "can't" without cutting into profits.
The tariffs do stink. It's a rotten idea, in the first place, true.